Unified licensing – a regulatory solution for underdeveloped markets?

David Rogerson, Associate Principal Consultant, Regulatory Practice

Mobile communications has had a dramatic impact on all countries and societies, but arguably its greatest impact has been in the developing world. In Africa, for instance, fixed line penetration has trundled along at just a few percent of the population for decades; yet within a matter of just a few years mobile penetration has hit 10, 20 and even 30% or more in some country markets, as shown in Figure 1.

Figure 1 Mobile penetration rates in selected African countries, Q3 2006

Source: Wireless Intelligence 

Of course, it is not just a matter of statistics. Mobile communications have brought about rapid social and economic development, and have achieved this across a wide geographical and socio-economic user base. The stories are manifold: family cohesion is now being maintained between parents in rural villages and children in distant cities; farmers are checking on agricultural product prices before deciding whether to take the long journey to market; health officials are reminding patients to take their medicine, and matching blood donors with cases of need, all via SMS. Walk down the street in any African or Indian village and you will invariably find street vendors selling phonecalls on prepaid mobile handsets, and roadside shacks serving as mobile tele-centres for the local neighbourhood.

The economic benefits of mobile communications in developing economies are well documented, not least by Ovum. Although originally seen as a value-added service, and still with an intrinsically high-cost technology compared with fixed networks, vibrant competition has stimulated innovative solutions and affordable prices within the mobile sector. Benefiting from relatively low entry costs (compared with fixed networks) mobile network operators have, ironically, now achieved the sort of size at which fixed networks ought to enjoy better scale economies – only the latter networks are still mired in the 2–5% penetration range.

Can mobile meet all the communications needs of developing countries?

Recognising the benefits of mobile communications, many developing countries are keenly watching developments in next-generation mobile networks: 3G data services, WiMAX and WiBro to bring broadband connectivity. The vast majority of communications in developing countries is currently voice, with just a little SMS traffic among the better educated. However, data services are seen to be critical to the more diverse and sophisticated applications needed to fuel future economic growth; and greater bandwidth is needed to make these applications efficient and effective, especially when competing in a global market.

It’s at this point that the economics of mobile in developing countries might start to break down. The incremental costs of bandwidth on mobile networks are significant, regardless of any scale economies that can be achieved, because of the irreducible need for spectrum. Spectrum is a scarce ‘bottleneck’ resource, and one which is needed in ever greater amounts to supply high-bandwidth services. Regulators throughout the world are increasingly recognising that efficient management of their spectrum resources is going to be key to continued industry development. This in turn means that fixed networks should be used wherever possible, so as to relieve pressure from mobile networks on spectrum resources.

The problem in Africa, and other developing markets, is that there is currently no significant fixed network to turn to.

Are unified licences the solution?

In many African markets there is one organisation that has consistently sought to thwart the growth of mobile: the fixed network incumbent. With the best of intentions (that is, to encourage competition from MNOs) regulators often excluded the fixed incumbent from entering the mobile market. In such cases (and even sometimes where it does have a mobile subsidiary or part ownership in a MNO) the fixed incumbent has resorted to hard-line defence tactics. Rather than seeking to fight growth with growth, some incumbents have increasingly resorted to heavy-handed legal enforcement of their fixed network exclusivity. This has hardly helped their profit margins, but it has certainly dampened innovation and investment on the part of the MNOs.

Some regulators (in Nigeria, Tanzania and Botswana, for example) are now looking to step around these problems by offering what are known as unified licences. These licences grant authority to run a telecommunications network and offer telecommunications services. They are, however, properly technology-neutral in that they do not specify whether fixed or mobile technologies are to be used. Of course, if mobile technologies are used, the licensee must additionally obtain spectrum usage rights. But, crucially, unified licences allow the MNOs to offer fixed network services.

We see two major benefits from unified licences:

• they will help to transfer to fixed network services some of the competitive disciplines inherent in the mobile market
  
  
• they will enable MNOs to start using fixed network technologies where this is the most cost-effective solution, and to do so in the most efficient manner, without relying on the fixed network incumbent.
  
  

Unified licensing is no panacea: it will not magically transform the moribund fixed networks of Africa or elsewhere. Nevertheless, the increased market flexibility that results from unified licensing can only be a good thing. It will help to overcome the current predisposition towards use of mobile technology, so that fixed network components may be used, and fixed network services provided, wherever that is the optimum solution. This is important as the telecoms market moves more towards fixed–mobile convergent services. In the longer term, and equally importantly, unified licensing will also ensure that scarce radio spectrum is reserved for applications that really need it, thus maximising economic welfare.

David Rogerson is an Associate Principal Consultant with Ovum’s Regulatory Practice. He is renowned worldwide as a leading advisor to regulators and operators on access and interconnection, pricing, universal service and number portability.